The British pound managed to correct its falls very nicely. The upcoming week will be much more challenging: the fourth quarter begins with many key indicators, and a rate decision that will be closely watched. Here is an outlook for the British events, and an updated technical analysis for GBP/USD.
Britain managed to distance itself from the worsening debt crisis in Europe and enjoyed the diversification of funds towards the sterling, that were proposed by the SNB. This week, a lot depends on the British fundamentals, which are somewhat worrying.
GBP{/USD daily chart with support and resistance lines on it. Click to enlarge:
- Halifax HPI: Publication time unknown at the moment. HBOS bases its house price index on internal and wide mortgage data, making this report very credible. After three months of gains, prices took a dive with a drop of 1.2% last month. A small correction is due now.
- Manufacturing PMI: Monday, 8:30. According to purchasing managers, the British manufacturing sector is contracting in the past two months. A drop from last month’s 49 points is expected now. The 50 point mark separates contraction and growth. Any figure will rock the pound in this important release that starts the series of PMIs.
- Construction PMI: Tuesday, 8:30. Of all sectors, construction is leading. A score similar to last month’s 52.6 points is expected now. This reflects considerable growth. A rise back above 53 will boost the pound.
- Services PMI:Wednesday, 8:30. The biggest sector is kept for last. Growth is still seen here, although it disappointed badly last month with a big drop to 51.1 points. Another erosion is likely now. A dip under 50 will sound the recession bells.
- Current Account: Wednesday, 8:30. This is a late figure, lagging after the smaller scoped trade balance. Nevertheless, its wide scope and low frequency make it important. In Q4 2010 and Q1 2011, the deficit stood at around 10 billion pounds. A small drop in this deficit is expected now.
- Final GDP: Wednesday, 8:30. The weak growth rate of 0.2% in Q2 was reaffirmed in the first revision. The second revision will likely put a final stamp on it. Although revised and overshadowed, a change in this important figure will rock the pound.
- Rate decision: Thursday, 11:00. Ease now or ease later? Another round of quantitative easing seems imminent in Britain, as the meeting minutes suggested. The timing moves between this meeting and the one in November. November has higher odds at the moment. Contrary to previous rate decisions, this one will not be a non-event. A decision to expand the Asset Purchase Facility by 50 billion pounds will weigh heavily on the pound and isn’t priced in. A decision to take no decision will help the pound, as some expect an immediate move.
- PPI: Friday, 8:30. Although inflation is less important now than a few months ago, this figure will still have an impact. After two months of rises, PPI Input, the main figure, fell by 1.9% last month, more than expected. A small drop will likely follow. PPI Output is set to follow suit.
* All times are GMT.
GBP/USD Technical Analysis
Pound/dollar began its rise early in the week, and was nicely capped by the 1.5706 line (discussed last week). It continued its range trading, until it closed at 1.5532.
Technical levels from top to bottom
The round number of 1.60 is our top line for now. It worked well in both directions during 2011. 1.5910, which was a peak many months ago, gave a fight, but was eventually broken and is distinct line separating ranges. Any recovery attempt will meet fierce resistance here.
1.5823, which worked as stubborn support early in the year is now minor resistance. It is closely followed by the swing low of 1.5780, a minor resistance in 2010, which is high resistance now. 1.5706 was a previous low and proved to work as strong resistance.
1.5633 worked as support during September and remains a pivotal line within the range. It is followed by 1.5530 which was the bottom line of the recent range, and had a similar role back in 2010.
1.5480 has a minor role as support after working as resistance a long time ago. It now worked as distinct resistance for the recovery attempt.
1.5350 was the last line last week and it eventually provided some support, despite attempts to break lower. Below, 1.5295 was a swing low at around September 2010 and is now weak support.
1.5240, which capped the pair quite stubbornly in August 2010 is stronger support. Lower, 1.5120 was a stepping stone for the pound on the way up. The last line is very round 1.50.
I am neutral on GBP/USD.
While British fundamentals are poor, there is a high chance that the Bank of England will not enhance its QE program just now, and this could balance the weight on the pound. At the beginning of the week, the PMIs will be in the limelight.
GBP/CHF and EUR/GBP are in interesting technical positions.
Further reading:
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro to Dollar forecast.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For the New Zealand dollar (kiwi), read the NZD forecast.
- For USD/CAD (loonie), check out the Canadian dollar
- For the Swiss Franc, see the USD/CHF forecast.
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